Two-Tier ERP Deployments Gain Steam

June 14, 2011
Alex Woodie

Companies are increasingly seeking two-tier ERP deployments to support distributed operations, according to a recent study by Constellation Research. While running a mixture of different ERP systems in a hub-and-spoke manner is nothing new, the percentage of companies open to two-tier deployments has more than doubled in recent years. The trend could benefit the IBM i platform, as companies look to make the most of existing ERP investments and avoid expensive and disruptive company-wide ERP implementations.

According to Constellation analyst R “Ray” Wang’s two-tier ERP report, which was published February 28, the percentage of companies considering a two-tier ERP deployment has risen from about 21 percent two years ago to 48 percent this year. The numbers were taken from three year’s worth of Wang’s Software Insider Next Gen IT Leader Survey, and are based on the responses of at least 235 people for each survey.

Wang cites several causes for this move, including the need to address multiple types of businesses, different localization requirements, and the desire to optimize and modernize existing (i.e. “legacy”) ERP systems. The expense of running a single massive ERP system, and the difficulty of upgrading and modifying single massive ERP systems to meet changing business requirements, are also big factors at play here. Companies that are successful with a two-tier system report a reduction in costs and better overall business value than the one-size-fits all approach, he writes.

Mark Humphlett, director of ERP solution marketing for Infor, has noticed the increased interest in two-tier ERP deployments, which he used to know as hub-and-spoke deployments.

“As companies become more global in size, they realize they want to have a single instance of ERP at the corporate level for doing financials,” Humphlett tells IT Jungle. “But when it comes down to running the manufacturing at localized locations, they realize they don’t need a big behemoth financial system. They need smaller, more nimble ERP solutions to be able to meet the needs of those local locations, as well as being able to manage the manufacturing and the production and the planning that’s required for those local operations.”

Different tax codes, languages, and currencies; different modes of operations, such as discrete or process manufacturing; and different industry specialties, such as aftermarket parts or warranties, are all factors that are driving the rise of two-tier ERP.

It’s no coincidence that the rise in two-tier ERP deployments coincides with the economic recession that began in late 2008. As IT budgets were slashed, IT departments were forced to make do with less. In many cases, big ERP migration plans were delayed or axed entirely. Instead of moving to new systems, companies focused their resources on improving their existing systems, including all those legacy ERP applications and the underlying hardware and personnel that make them work.

But Humphlett says the recession, and the realignment of IT resources that it drove, is only part of the cause of greater acceptance in two-tier systems. The root cause, he says, is the dawning realization that big-bang, corporate-wide, you’re-going-to-do-it-my-way, shove-it-down-your-throat ERP installations don’t work and don’t make any sense.

“Having a single solution would definitely be the ideal,” he says. “But the reality is the larger ERPs from our friends in Germany or our friends on the West Coast are typically coming from a financial background.” That was, of course, a thinly veiled reference to SAP and Oracle, which are the two largest ERP software vendors in the world. With its pending acquisition of Lawson Software, Infor will be a strong third.

Oracle and SAP have moved to offer an array of capabilities and product suites to support all the different business requirements of its global customers, including manufacturing-specific capabilities, Humphlett continues.

“But when you get to a system that’s that large, it becomes cost prohibitive to maintain or upgrade it,” he says. “It’s just something that people are realizing, that the high cost and poor fit of that global ERP system is just something they don’t want to maintain. They’ll typically see a reduction in implementation and support cost, and quicker implementation times with more specialized or industry specific solution at the subsidiary level.”

Infor is obviously happy with its fairly vast collection of acquired ERP systems, and their relative strengths in different geographies, specialties, and industries. The Atlanta, Georgia-based company also has a laser focus on manufacturing. Nearly all of its ERP systems are manufacturing oriented, and 80 to 90 percent of Infor’s customer base of 70,000 are manufacturers.

The greater acceptance of technological diversity should help the IBM i platform, as customers put more value on functionality and flexibility than on corporate uniformity. Among Infor’s large base of IBM i shops, the trend is leading customers to reconsider keeping their IBM i ERP systems as solid second-tier systems, behind an SAP or Oracle financial system. Some customers even use an Infor IBM i-based system as their primary financial package, although its Unix-based Baan ERP LN solution is probably in wider use at the corporate level.

What are your thoughts on two-tier ERP? If you’re an IBM i shop and you want to share your two-tier experiences, contact the IT Jungle editorial team here.

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